Finra to revamp market exams for broker-dealers

Regulator will focus on data, risk analysis

Finra will take a data-centric approach to performing market exams, pulling reams of information from broker-dealers, insurance companies and clearing firms.

The initiative was announced last month by Richard G. Ketchum, chairman and chief executive of the Financial Industry Regulatory Authority Inc., at the Insured Retirement Institute's Government, Legal and Regulatory Conference in Washington.

“As I go around the country and sit down with our members, the consistent thing I've heard about Finra is the basic concern that while there's a great deal of respect for the examiners and the examination program, there's frustration that the examiners come in and don't understand the firms, that they're not focused on the areas that are most critical to the firm,” he said.

As a result, Finra developed a program centered on risk analysis and combined that with increased outreach to broker-dealers at the branch level. Finra brought on 20 more coordinators to carry out its increased communications with broker-dealers, bringing the total number of surveillance-focused staff members to 90, Mr. Ketchum said.

The regulator also has been working with major clearing firms and insurers to gather data.

“We're digging deeper into areas that pose the most risk to ensure that examiners are asking the right questions,” he said. “We're going to spend more time in our offices than your offices, collecting data.”

Ultimately, Finra would like to develop standard data feeds for the industry, Mr. Ketchum said.

Finra in April asked life insurance companies to submit information about the products most frequently sold by retail firms.

Finra expects soon to place a similar request to variable annuity manufacturers, Mr. Ketchum said.

Asked about the gravitation of VA sales to only a handful of insurers, Mr. Ketchum said: “We've noticed it, and we're very focused from a manufacturer standpoint with respect to disclosure. From that standpoint, we're looking at the incentives firms are provided to ensure that they're fully disclosed.”

Updated guidelines and some of the first-ever rule enforcements signal that regulators are getting serious about holding firms accountable for data breaches, according to special projects editor Liz Skinner and technology reporter Ryan Neal.

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